The federal debt consists of public debt, which occurs when the Treasury of the Federal Financing Bank (FFB) borrows money directly from the public or other funds or accounts, and government debt / agency debt, which is incurred when a federal agency other than the Treasury of the FFB is authorized by law to borrow money from the public or another fund or account.

Total debt of the federal government can increase in two ways. First, debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public, i.e., public debt. Second, debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it. Total federal debt outstanding was $14,251 billion on April 1, 2011.

The gross federal debt, almost all of which is subject to statutory limitation, consists of the debt held by the public plus the debt held by government accounts. The debt held by the public is the total net amount borrowed from the public by the federal government to cover its budget deficits over the years. Usually, analysts use the debt held by the public as the measure of the impact of the federal government’s borrowing on the economy. It is this portion of federal debt that not only reflects the amount of the nation’s wealth invested in federal government securities rather than in private investment, but also determines the level of real resources the government must acquire to make interest and principal payments. The debt held by government accounts is the total net amount of federal debt issued to specialized federal accounts, primarily trust funds. It represents internal transactions of the federal government.

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